United States stock futures traded modestly higher on Tuesday evening (Wednesday AEST), extending Wall Street's gains after softer-than-expected inflation data and a strong start to the second-quarter earnings season lifted investor sentiment.
By 10:00 am AEST (12:00 am GMT), Dow Jones futures were up 0.1%, S&P 500 futures gained 0.2%, and Nasdaq 100 futures rose 0.3%.
Wall Street rallied during Tuesday's session after June's inflation report strengthened expectations that the Federal Reserve may not need to tighten monetary policy as aggressively in the near term.
The Consumer Price Index (CPI) fell 0.4% from the previous month, bringing the annual inflation rate down to 3.5%. Economists had expected a 0.2% monthly decline and annual inflation of 3.8%.
The softer inflation reading prompted traders to reduce expectations of an imminent interest-rate increase. According to CME's FedWatch Tool, the probability of a rate hike at the Federal Reserve's July meeting fell to 17%, down from 42% a day earlier.
Markets, however, continue to expect further policy tightening later this year, with traders assigning a 63% probability that interest rates will be either a quarter- or half-percentage point higher following the September meeting.
ANZ analysts said the latest inflation data reinforced expectations that underlying price pressures are continuing to ease.
"Our expectation is that we will continue to see progress on underlying inflation back towards the 2% target in coming months, and the Fed will remain on hold this year.
"Today’s data brought further evidence that tariff pass-through has run its course, with another month of weak core goods inflation, and outright deflation in some import-heavy components most sensitive to tariff impacts.
"Core services ex-housing (‘supercore’) inflation was also weak, and encouragingly the weakness was broad-based. Shelter inflation was soft. Forward indicators suggest that will remain the case for some time.
"Upside risks have not gone away and data will need to be analysed for signs of inflation pressures broadening."
Corporate earnings also remained a key driver of sentiment. The second-quarter reporting season began on a positive note, with JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs all delivering results that exceeded analysts' expectations.
Investors will now look ahead to another busy day of corporate earnings on Wednesday, when United Airlines, Morgan Stanley, Johnson & Johnson and BlackRock are scheduled to report quarterly results.
